A drop in interest rates won't affect existing hedges that already hold a fixed income instrument with the required return. But if 2-year rates are at 0.5%, you would be holding very slightly over 99% of the asset in the fixed income asset to cover possible total loss of the slightly less than 1% held in the 2-year leap. You might as well just hold the fixed income instrument, and harvest the slightly higher than 1% over 2 years.
If rates are near zero, they don't work at all. Zero cannot offset any downside.
If rates are near zero, they don't work at all. Zero cannot offset any downside.
Statistics: Posted by Northern Flicker — Mon Jul 29, 2024 12:59 pm — Replies 20 — Views 3102